Another bad budget scheme

From today’s editorials: For all sorts of reasons, a plan to borrow to pay for rising pension debt is a bad idea. Worse, though, the Legislature is looking to make the system even more expensive even as it can’t afford what it has.

____________________

If there was one position that seemed to transcend partisan politics in New York this year, it was this: Borrowing its way out of a deficit was a bad thing for the state to do.

So what’s the Legislature’s plan? Borrow its way out of the deficit.

That’s right. Still kicking around the Capitol is a plan, already approved by the Assembly, allowing the state to borrow from the pension fund to pay off some of its pension bill. Worse, it would let local governments do it, too. Still worse, it would make this practice permanent, allowing governments to borrow from the fund whenever they need to.

Once again, the state is scrambling to fix a predictable, avoidable problem. While borrowing may indeed solve the crisis today, the state and local governments can, and must, come up with smarter solutions for the future. Borrowing like this should not be a way of life.

There is, to be sure, an argument to be made for the strategy. One reality of the retirement system is that employer obligations rise and fall depending on how the pension fund’s investments are doing. With a recession on, the fund is down and bills are up — by about 40 percent next year, threatening the state and local governments with budget-busting bills. The idea is to let them spread their payments more evenly, sort of the way a homeowner uses a heating oil budget plan to keep bills from spiking in the winter.

There are, however, several problems with this scheme.

First, this is, clearly, just another way for the Legislature to borrow its way out of a deficit and incur debt to cover an operating expense.

A smarter, less expensive solution would be pension reserves that governments could draw down whenever bills rise too much. They could earn interest on the reserves, rather than have to pay interest on the debt.

Second, this situation isn’t like a heating bill that is sure to drop in warm weather. It is by no means certain that the stock market’s rocky rebound will continue and the fund will improve, leading to lower bills. The state and local governments that engage in this borrowing practice could be setting themselves up for years of accumulated debt, making future bills only more onerous.

Third, the financial ramifications are unclear. The bill containing this had no analysis of the fiscal impact. That’s irresponsible. If not for outside analysts like the Empire Center for New York State Policy, taxpayers wouldn’t know that state and local governments could rack up an estimated $5.3 billion in debt over the next three years.

And finally, this idea allows the Legislature to go on pretending that high pension bills are just an fluke, not evidence of a problem that needs fixing. That’s the same mentality that produces the dozens of pension sweeteners floated by the Legislature this year, bills that would further jack up the cost of a system that lawmakers are — follow this now — trying to borrow to pay for because it’s too expensive. There are bills to put certain new public employees into old pension tiers that were discontinued years ago because they were too costly. Bills to let more and more workers retire early. Bills to let employees buy pension credits for years they didn’t even work.

And that’s perhaps the really troublesome thing here: The Legislature tries to borrow its way out of a crisis even as it comes up with ways to make it worse.